3 Ways to Grow Indiana’s Economy by Investing in Tech

By: graphicstock

April 19, 2017

By: Casey Stanley—

Slow-moving economies don’t often emerge as leaders. That’s a basic lesson anyone building a community or a business has learned.

We’re seeing it play out today: Indiana’s tech and innovation community has a lot of momentum, and the ability to create more high-wage, tax-paying jobs – but not without more venture capital and connectivity to other major hubs. We are proud to call Indiana “home,” but we need support from those who influence policy and their constituencies, or we risk stagnating, falling behind, and missing out on providing a primary channel for new jobs and growth. From transportation and energy to finance and medicine, technology is deeply integrated across sectors and across our economy. Businesses rely on technology to interact with their customers, improve their services, and make their operations more globally competitive. Technology transforms industries, which helps us grow stronger.

And while “It can be intimidating to see technology change the modern workforce,” according to the U.S Chamber of Commerce’s Tim Day, “To think that robots will take away everyone’s jobs misinterprets the growth that comes as a result of innovation. Each high-tech job created creates five additional jobs in other sectors like construction, law, medicine, education, and retail.”

To add, Mark Muro from the Brookings Institute notes in a recent survey, “Tech in Metros: The Strong are Getting Stronger,” that of all advanced industry jobs created from 2013-2015, half were in tech, growing jobs 5.5 – 6%/yr compared to <2%/yr across all industries. Indiana needs to capture as much of that growth as possible, especially since tech jobs here pay more than double the state median wage.

Doing so relies on access to local venture capital, a position in which we find ourselves relatively weak compared to peer states. In 2016 ¾ of all venture capital deals in Indiana, and two-thirds of all dollars – period – were invested in tech companies. But consider the following:

Only a very small handful of firms exist in Indiana that can make the $2-20 million investments needed to capitalize companies hoping to scale up.

SSTI’s analysis of PricewaterhouseCoopers/CB Insights’ Moneytree Report Explorer shows Indiana does not fare well in venture capital investment compared to other states.

Despite having the 17th-largest economy in the country, Indiana ranked 27th in the amount of venture capital invested by state in 2016 – And it was a stronger year than those past.

Compare our state to others like Minnesota which, with the 16th-largest state economy, attracted $339 million in venture capital investment last year, or Colorado – the 18th-largest state economy – which attracted $670 million. That’s 4.4 times more, and 8.7 times more than Indiana, respectively. All of our surrounding states – Illinois, Wisconsin, Michigan, Ohio, Kentucky, and Tennessee – attracted more venture capital investment in 2016 than Indiana did. And even when adjusting for state population size, Indiana underperformed, ranking 34th in 2016 in venture capital investment dollars per capita. Its average deal size – $2.5 million – ranked 39th in the nation.

So what do we need to earn more confidence in our tech community? Three important factors come to mind:

We need more bold, innovation-driven executives and entrepreneurs. Indiana companies need capital to dream big. Angel investors help, but it’s crucial for us to attract those with big aspirations of building market-leading, major employers.

We need better state financial returns for Indiana’s Next Level Fund. All funds proposed for investment in venture-capital firms are currently placed in fixed-income assets yielding very low returns. Balancing our investment strategy would benefit Indiana greatly – We’ve seen that strategy pay off in Michigan and Ohio, where investing state money in venture capital pushed returns into the top quartile nationally. In Michigan, the investment was so successful a second fund was raised.

We need to diversify, economically. Indiana is the most manufacturing-intensive state in the country, making us more susceptible to recession, and vulnerable to changes in the broader economy. We need to change our landscape to better capitalize on that shifting marketplace. That move isn’t just a speculative one: Rating agencies look at our state’s economic diversification as a factor in extending credit. While Indiana has a AAA credit rating, its weakest component score by S&P is in the “Economy” category, because we lack diversity in our investment.

We’ve said it before, and so we’ll say it again here: Indiana’s tech and innovation community has a lot of momentum and the ability to create a lot more high-paying, tax-paying jobs, but it’s in desperate need of more venture capital and connectivity to other major hubs.

We need to do better – and we can. Call your state representative and state senator and encourage them to support:

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